Low-Cost Product

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ToughStuff

Overview

The focus of this model is to produce products that have a low upfront cost, without subsidies or financing. This model generally involves small-scale individual products such as lanterns or stoves. The target customer is not the poorest customers, but rather those that have regular kerosene and cooking fuel expenditures and the capacity to save. These customers use the money saved on fuel to pay off the upfront cost within 2-3 months. This model often makes use of retailers. Because the enterprise does not have to find financing or provide financing for customers, it is easier to work through third-party distributors.

Pros

The enterprise offering a low-cost product can focus on the number of products sold rather than creating follow-on impact. Furthermore, the products produced are inexpensive enough to avoid requiring involving banks or microfinance institutions, thus simplifying the entire process.

Cons

This model only works if the product is cheap enough relative to customer income to be affordable. Similarly, the products must be simple enough to sell and use without training and durable enough to not need maintenance. Finally, if the benefits of the product cannot be clearly articulated, scaling may be impeded by non-consumption because the customer may only see a marginal benefit that is not worth the hassle.

Case Study

ToughStuff sells a range of small modular products, powered by a 1W solar panel, including an LED lamp, a battery pack, and a mobile phone charger.

ToughStuff products cost an average of US$10, and in most countries customers can cover their costs with savings in 2-3 months. The fact that ToughStuff products do not need outside financing has enabled the enterprise to sell over 300,000 products to date. These products, including the panels themselves, are highly durable and do not require maintenance. ToughStuff has kept costs low in part by making its products modular. By selling the solar panel, light, and battery pack separately, each component becomes affordable in that they do not need to be bought all together.

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